IMF warns of world recession

THE INTERNATIONAL Monetary Fund (IMF) yesterday sharply cut its projections for world economic growth and warned there was a risk of a global recession.

It said the US and the euro area both needed to consider "a moderate easing of monetary policies" to help to mitigate the global crisis.

According to the IMF, the global economy will grow by just 2 per cent this year and 2.5 per cent in 1999. In May, the IMF forecast that world economic growth would be 3.1 per cent in 1998 and 3.7 per cent in 1999.

World economic growth will be more balanced next year, the IMF says, with some modest recovery in Asia but a downturn in the hitherto buoyant economies of the US and western Europe.

The IMF warned that there were "predominantly downside risks" to its new growth projections, which are still significantly more optimistic than many City forecasts.

The risks of worse-than-expected economic growth would be particularly great if "the acute pressures on financial flows to emerging economies persist", according to Michael Mussa, IMF economic counsellor and director of research.

The global crisis has so far cost $600bn to $800bn in terms of income forgone, according to the IMF. This is approximately equal to an economy the size of Canada "taking the year off", Mr Mussa said.

Although the IMF is not predicting a global recession - which it defines as world annual economic growth of 1 per cent or less - this nevertheless remains a risk.

Mr Mussa said global recession was an unlikely outcome but it was not impossible.

The IMF predicted most Asian economies would start to recover next year. The Japanese economy, for example, is forecast to grow by 0.5 per cent in 1999, after contracting by 2.5 per cent in 1998.

However, the economies of US and western Europe, which have to date been relatively unaffected by the market turmoil, will start to turn down.

The UK economy is forecast by the IMF to grow by 1.2 per cent in 1999, considerably less than forecast by the Treasury, and the second lowest growth forecast in the G7.

The IMF - which is not forecasting an outright recession in the UK - said the slowdown reflected "a tightening of monetary and fiscal policy".

The IMF urged the 11 European countries participating in the first wave of Economic and Monetary Union to tighten fiscal policy, but said there was room for manoeuvre on short-term interest rates.

Mr Mussa attacked the suggestion that the IMF only ever advocated a tightening of monetary and fiscal policy as "nonsense". He said the fund was advocating tighter policy for only 10 per cent of the world's economy.

PROMOTED VIDEO
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Extras
indybest
Arts and Entertainment
Chocolat author Joanne Harris has spoken about the financial struggles most authors face
books
Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' is based on historical events
News
people
Arts and Entertainment
filmSir Ian McKellen will play retired detective in new film
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
tech
Arts and Entertainment
'Molecular Man +1+1+1' by Jonathan Borofsky at Yorkshire Sculpture park
tv
News
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
Extras
indybest
News
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Web Services Developer

£200 - £450 per day: Harrington Starr: Web Services Developer Web Services, WP...

Trainee Recruitment Consultants For Multiple UK Offices

£18000 - £25000 per annum + DOE, OTE £40000: SThree: LONDON - BRISTOL - DUBLIN...

Financial Accountant-IFRS-Gloucester-£300/day

£250 - £295 per day + competitive: Orgtel: Financial Accountant - IFRS - Glouc...

SharePoint/C# Developer - Aberdeen - Circa £40K + benefits

£30000 - £40000 per annum + excellent benefits: Deerfoot IT Resources Limited:...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil